Patent box 3.0? No thanks, that’s why
The intervention of Edoardo Belli Contarini, tax consultant, partner of Studio Fantozzi
The legislator, after the conversion of the legislative decree 146/2021 without changes on the subject, is about to put his hand to the patent box regime for the third time, to remedy the previous intervention to repeal the benefit, in the budget law; however, this time too the remedy is worse than the disease. But let's proceed in order, also because, as we will see, “history teaches”.
The tax reduction of business income deriving from the so-called IP was introduced by law no. 190/2014, with the “Industry 4.0” package, and then strengthened and simplified, especially for innovative SMEs, most recently with the so-called “growth decree” no. 34/2019. In fact, the latter provision contemplated the self-settlement mechanism, ie the right for the company to independently determine the benefit, without the need to submit any ruling to the Revenue Agency; what made the facilitation even more appealing, which, unfortunately, was suddenly repealed by art. 6 of Legislative Decree 146/2021, with ex tunc effect, ie without prejudice to the PB options exercised by the date of entry into force of the same decree.
This although the PB tax exemption was a tax incentive: i) compliant with OECD legislation and international standards; ii) to stimulate performance, as it affects the income achieved by the innovative company, iii) with the aim of "protecting the national tax base" or attracting the allocation of PIs to Italy and preventing relocation abroad of the same intangibles (see MISE website and AdE circulars n. 36/2015, n. 11/2016, n. 28/2020); iv) characterized by a certain degree of complexity, in relation to the quantification of the implicit "economic contribution" that derives (goes) from the PI, which algebraically contributes to form the partially subsidized business income, but now well-established and tested for some time, both by the financial administration and by companies, by virtue of a regulatory framework and practice now completed and stabilized, also with regard to the so-called "penalty protection", v) can be combined, in a virtuous way, with the R&D tax credit, which , unlike the PB, in a synergistic way, it rewards (va) the costs of innovation, vi) which has a positive impact (va) even a posteriori, i.e. at the moment of the exit or acquisition of the innovative company by the investors, also foreign, which, during due diligence, calculates (va) no the partial taxability of the income earned by the target company.
The question therefore arises spontaneously on the convenience of abolishing this virtuous and now “metabolized” tax incentive, which, for ease of reading, we will call “PB 1.0”, replacing it – more recently – as a result of art. 6 of Legislative Decree 146/2021, with the "PB 2.0.": This is the so-called "super-deduction" of 90% of the R&D costs relating to the implementation of IP and in particular software protected by copyright, patents, trademarks, designs and models, know-how; moreover, the same rule also provided for the prohibition of accumulating this hyper-deduction with the use of the R&D tax credit as compensation.
It should be added that translating the tax incentive, which rewards (goes) the results and therefore the income produced by the PIs, versus the costs, regardless of the actual performance achieved, leaves us banned, since in this way large companies are rewarded, which have conspicuous resources are available – for example pharmaceutical ones – to the detriment of SMEs, which, on the other hand, have a more limited spending budget, but a very significant growth potential.
The declared purpose of the "PB 2.0", read the illustrative report in legislative decree 146/2021, should be identified, first of all, in an attempt to simplify the previous concession, and in fact this can be there, even if the new regulation brings with it a simplification only apparent, implying various elements of application uncertainty, now all to be filled from scratch by the practice of the Revenue Agency, which, in outlining the definition of "research and development", at least in the past, has generated many uncertainties.
The other objective of the so-called “simplified PB” or “PB 2.0” – would be to contain the costs for public finance, arising from the continuing application of the “PB 1.0”, also due to the simplification provided for by art. 4 of the aforementioned legislative decree 34/2019.
But even this last assumption is all to be verified, since to measure the savings for the tax authorities – the actual one and then by how much? – they should counteract the impact, again in terms of revenue, deriving from the zeroing of the related "induced", as well as from the effect of "flight" and consequent relocation abroad of the PIs (with the related income that would be taxed elsewhere) and investments (which would follow the same fate for reasons of substance and consistency in the creation of value, as required by the BEPS project). In this regard, think of what was said at the beginning about the ratio of the "PB 1.0", indeed aimed at the "protection of the national tax base", ie the attraction and maintenance in Italy of resources and investments, which would otherwise be allocated in other countries, which already provide for a similar incentive.
Not to mention that for the financing of this last fiscal measure – the "PB 1.0." – it could draw on the funds of the PNRR (at least for some specific sectors that are considered strategic for the years to come) and that, also from this point of view, it is necessary to distinguish between "good spending" and "bad spending"; but if the "PB 1.0" was also adopted in 2017 by Israel and in 2020 by Switzerland "by sensation", it seems to fall more into the first category than the second.
Now, in the budget law, we would like to intervene on the "newly converted" dln 146/2021, precisely following the protests of companies and professionals against the "PB 2.0", running for cover: it is conceived – here too for ease of reading – the "PB 3.0" in order to "compensate" for the negative effects caused by the abolition of "PB 1.0" and the new version, but only in the "nomen", and not in substance, "PB 2.0." , inserting the following corrective measures.
The "PB 1.0." survives, but only for the options exercised with reference to 2020; therefore the benefit is eliminated, with effects only ex nunc, with all due respect to the principle of non-retroactivity of the tax law referred to in the "Statute of the rights of the taxpayer"; even if, as regards planning and investments in innovation, we have now reached the end of the 2021 financial year.
The ban on cumulation between "PB 2.0." – rectius now "PB 3.0." – and use in offsetting the R&D tax credit, which can therefore be applied together; from 2020 onwards, the company can also retrace its steps, and even choose between the already optioned “PB 1.0” and “PB 3.0”.
The super-deduction of R&D costs is increased, raising it from 90% to 110%, along the lines of the infamous "superbonus", perhaps to make this regime even more appealing, and it is possible to recover the costs incurred in the eight years prior to the registration of the 'IP.
However, the perimeter of the "PB 3.0." it is limited, by removing the trademarks, perhaps in the light of the indications of the OECD; and, in cauda venenum, the know-how is also eliminated, which however from the beginning has always been rewarded, representing a very important intangible in our country, so much so that it is also legally protectable pursuant to articles 98 and 99 of the Intellectual Property Code referred to in Legislative Decree no. 30/2015.
The effect is disruptive, because, in addition to the illustrated negative consequences arising from the abolition of "PB 1.0", it is difficult to understand the underlying strategy pursued by the legislator: perhaps the goal is that of "simplifying" the regime, but as demonstrated , this is not the case.
Perhaps the objective of containing the public debt is pursued, but seeing the phenomenon as a whole, this is probably not the case, although the final assessment of the impact on the revenue rests with the General Accounting Office of the State.
In any case, even considering the discretion of the legislator, since it is a "good debt", there is ample room to finance the maintenance of the "PB 1.0", perhaps by rationalizing and cutting some incentives launched in the last two years, also as a function of "aid and anti-Covid support ”.
There would be another remedy. This is a simple idea, but perhaps, as such, of easy and immediate concrete application: rather than introducing yet another, complicated and still to be regulated from scratch, sub-species of "PB 2.0" and / or "PB 3.0 "- in the same way as the" 110% superbonus "- in order to simplify the operations of companies, consultants and the financial administration itself and to avoid an explosive tax dispute, as is happening for the R&D tax credit, and how it will happen certainly for the same "superbonus 110%", it would be better to decree the definitive survival, or rather the "revival", of the experienced "PB 1.0".
At the limit – "history teaches" – if really necessary, the tax exemption from IP income up to yesterday established at 50%, could be reshaped downwards, as happened at the beginning in the years 2014-2015, that is to the extent of 40% – 30% percent.
Companies do not want it, but it seems to understand that, due to the bad turn that this affair has taken, as a compromise, we will still have to give up something to keep the "old and beloved PB 1.0".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/patent-box-3-0-no-grazie-ecco-perche/ on Tue, 21 Dec 2021 08:59:24 +0000.